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Andrey Kostin: “We do believe that investment climate in Russia is better than the investment image of Russia”

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25.01.2013

REPORTER: The Prime-Minister argued that Russia’s economy is attractive to investors thanks to its low unemployment and low level of debt, but he acknowledged that improving public governance has been a top priority. Russia currently ranks below Iran and Honduras in the global corruption surveys. Let’s get some insight into Russia’s economic outlook with Andrey Kostin, he is the Chief Executive Officer of VTB Bank, one of the country’s leading lenders and a main speaker at Davos. Good to see you, Andrey.

ANDREY KOSTIN: Good afternoon.

REPORTER: I thought it’s a very interesting speech there by Prime-Minister Medvedev, saying "we can’t go back, we are not going back and try not to go back to Soviet times, and rebuild the Soviet Union with our trade agreements with Central Asia, and I do need to keep foreign direct investment up at least 10% a year", but it still has not happened. What’s holding back the investment into a market of better than 140 million consumers?

ANDREY KOSTIN: I think, there are two major problems now for the Russian economy, and one is the infrastructure. Russian government will be spending more on infrastructure and will be using more widely the PPP mechanism in this regard. Another is bringing in investments. We do believe that investment climate in Russia is better than the investment image of Russia, but still, more steps should be made in order to achieve good results, including keeping inflation down and improvement of the public governance, as you mentioned, and the activity of government institutions.

REPORTER: Andrey, to be really candid, you have a case where you have the Winter Olympics coming up, you have the World Cup coming up, if you’re not getting the infrastructure build out and the global investment in two huge events like that, when will it ever happen, that’s one of arguments.

ANDREY KOSTIN: The infrastructure for these events will definitely be built, but the problem is not to build the infrastructure just for these two events, we should build infrastructure for the whole country. Not only in Europe, but on the Pacific as well, and that, of course, will require a lot of money, a lot of efforts. But the government and the President are very much focused on this, understanding that one of the most urgent problem for Russia.

REPORTER: There was a long negotiation, arduous negotiation to get into the World Trade Organization, almost two decades long, now the aspiration is to be a member of OECD, is the country starting to see the benefits of WTO membership, because it is ranked as the second most protectionist country after Argentina right now. So it does not seem to be kicking in whatsoever.

ANDREY KOSTIN: Well, there’s still a public debate in Russia, whether Russia would benefit from joining WTO, but the political decision was made, Russia joined WTO, and we are now trying to get used to these conditions. Definitely, a lot of subsidies, I mean, many mechanisms should be changed and the Russian economy should become more competitive, but we see advantages mainly in this — we should build up our economy, we should build new technological industries, but based on quite competitive basis.

REPORTER: As you know, in the next half hour we are going to hear from Mario Draghi, the President of the European Central Bank, and the message we’ve heard so far from European leaders like Angela Merkel is «we stopped the crisis, we stopped the bleeding, but we can’t lower our guard just yet. " But Russia has to export so much to Europe, this downgrade from International Monetary Fund this week must alarm you as a large lender in Russia.

ANDREY KOSTIN: Mr. Cameron gave a different signal, I am afraid, which is highly debated.

REPORTER: He wanted to exit, but he is also saying that you need to be more flexible as an economy, right?

ANDREY KOSTIN: Yes, Russia definitely should review its policy. We understand this, we are still very much dependent on gas and oil export, and the economy should be changed, the economy is vulnerable till the time when we change this. That’s why the focus should be on high, new technologies, innovative technologies, and Russia is quite well advanced in this. For example, Yandex is just the second company in the world except for Google, and it was invented in Russia, so there are many other examples of this. And agriculture, a new area, which the Prime-Minister mentioned here. Hundred years ago Russia provided food for the whole of Europe, and there’s a lot of possibility for this to do it again.

REPORTER: To do it again. Good to see you, Andrey Kostin, thank you for joining us, the Chief Executive Officer of VTB.